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Posts Tagged ‘Federal Reserve’

Financial Crisis

A prudent man foresees evil and hides himself, but the simple pass on and are punished.

    Proverbs 22:3

Dow hits record as stock market rally extends into 5th week” ran Monday’s AP headline. The same day, CNBC was even more ebullient, proclaiming “After Dow hits a record, analysts believe these stocks will lead the measure to its next milestone.” So what shall I say? The past three months I’ve been writing series talking about the ongoing financial crisis of 2008 and not only are the stock markets refusing to crash, they’re hitting records highs! To make matters worse, Yahoo reports that “Gold Suffers Worst Week in Three Years as Bulls Run for Cover.”

I guess I should just give up writing about financial matters, right?

Or maybe not.

You see, my thesis that the American economy has never recovered from the 2008 financial crisis is not based upon where the Dow or S&P averages close or the price action of gold and silver in a particular week.

As a Scripturalist, that is, as someone who believes that the Bible has a systematic monopoly on truth, I seek to analyze the markets and the overall economy, not by what the day’s headlines report, but by the propositions found in the Word of God.

When looked at in light of the Scriptures, we can see that what is hyped as the greatest economy ever is, in reality, a house built upon sand, which, in the opinion of this author, the coming economic storms will sweep away.

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Eccles_2

The Marriner S. Eccles Federal Reserve Board Building in Washington D.C.

“[T]he Fed has one power that is unique to it alone: it enables the creation of money out of thin air.”

    – Ron Paul, End The Fed

The welfare state, the warfare state and the loss of liberty.

Inflation, extreme income inequality and the destruction of the middle class.

Exploding federal debt, skyrocketing federal deficits and a financial system on the brink of failure.

What do all these things have in common? To one degree or another, they are all the effects of the Federal Reserve System, more commonly known as the Fed, America’s central bank.

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Financial Crisis
A prudent man foresees evil and hides himself, but the simple pass on and are punished.

    Proverbs 22:3

It’s been a couple weeks since my last posting in this series, but there certainly has been no break in the flow of events. In the intervening time since my last entry on 10/20/19, there have been several noteworthy bits of financial news. Of those, the most important was the announcement from the Fed this past Wednesday that they had decided to lower the Fed Funds rate another quarter point. This was the third time the Fed has lowered interest rates in the past three months.

Now any such decision by the Fed is important given the tremendous power of the Fed to push financial markets one way or the other. The big takeaway, however, is what this decision says about the Fed’s assessment of the economy. Despite all the propaganda from the administration saying the economy is doing great, the decision by a the Fed, or any other central bank, to lower interest rates is a tacit admission that the economy is not doing well. If the economy were doing well, the Fed would be raising rates, not reducing them.

When you add to the Fed’s lowering of interest rates the ongoing (permanent?) bailout of the overnight repo market and the restart of quantitative easing (i.e. money printing), it is obvious that the those closest to the situation think that the economy is seriously struggling.

One of the justifications put forward for lowering interest rates and money printing is that there is no price inflation. But even according the Consumer Price Index (CPI), the official measure of price inflation put out by the Bureau of Labor Statistics, the CPI-U (the broadest measure of inflation) rose 1.7% for the period September 2018 to September 2019. But beware of official government statistics! Over the years, the federal government has changed the way it measures inflation. And it should come as no surprise that the change has been in the direction lowering reported inflation.

Economist John Williams runs a website called Shadow Stats where he purports to calculate inflation the old fashioned way. His most recent calculations of the CPI-U tell a very different story from the figures put out by the Bureau of Labor Statistics (BLS). As you can see Williams most recent numbers come in a little higher than those of the BLS. According to Williams, the official method of calculating inflation used prior to 1990 shows inflation running at a more than 5% annual rate. If you look at this calculations with the pre-1980 method, the difference from the current official number is even more striking. The pre-1980 method of calculating inflation indicates that the current inflation rate is almost 10% annually!

If Williams is even close to being right, all this latest round of money printing by the Fed is like dumping gasoline on a raging fire, meaning we can expect to see much higher inflation numbers going forward.

Here’s a critical idea to keep in mind when talking about price inflation: Inflation is always and everywhere a monetary event. By this I mean that inflation is always the fault of money printing by central bankers. You can watch the evening news faithfully for decades on end and you will not hear this. Ditto with the financial channels such as CNBC and Fox Business. They will never tell you the simple reason for price inflation: Central bank money printing.

Why is this? It’s not an accidental oversight. The mainstream press is essentially the propaganda organ of the establishment, and central bank money printing is the financial black magic the establishment uses to increase its wealth and power at the expense of ordinary Americans. The powers that shouldn’t be – Washington politicians of both parties, Wall Street bankers and big shot investors together with a gaggle of academic theorists and news media talking heads – have a great scam going and do not want to let ordinary Americans know how badly their being ripped off and by whom.

To borrow a turn of phrase from Warren Buffett, “If you’ve been playing poker for half an hour at the table and you still don’t know who the patsy is, you’re the patsy.”

Ordinary Americans have been the patsies of the financial elite, of whom Warren Buffett is one, since the founding of the Fed over 100 years ago. The Fed’s inflation games are not only bad policy, they are also sinful in the eyes of God. The Bible unequivocally condemns “divers weights and measures” which God calls an “abomination” (see Proverbs 20:10 and 20:20 for example), which merchants of the day used to rip people off in much the same way central bankers, politicians and their super wealthy clients do today. It’s high time people woke of to this fact. End the Fed!

There’s much more that could be said about inflation and, Lord willing, I shall discuss this topic in greater depth in the future. For now, though, it is enough to know that 1) the cause of price inflation in money printing by the Fed, 2) the current method of measuring price inflation deliberately and significantly understates its true rate and 3) these facts are not reported in mainstream news outlets in order to keep the public in the dark about what is going on.

“So what,” you may ask, “does any of this inflation talk have to do with financial prepping?” Quite a lot, actually. If we understand that a falling dollar is the product of the Fed’s intentionally increasing the money supply too fast, we are positioned to understand ways of protecting ourselves against the ravages of price inflation.

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Financial Crisis

“In his book…A Christian View of Men and Things [Gordon] Clark comments that the growth of government is the greatest tragedy of the twentieth century.”

    – John W. Robbins, “The Growth of Government in the United States

The thesis underlying this series of posts and reflected in the series’ titles, is that the 2008 financial crisis never really went away. Yes, the stock market has recovered and gone on to hit new highs. Yes, we don’t see massive layoffs taking place or people standing in bread lines. So the visual cues that we expect in a financial crisis are not present.

Further, we see announcements in the press stating how strong the American economy is, and various statistics are brought forth to prove this, perhaps most notably a low unemployment rate.

Donald Trump has been very aggressive at touting the strength of the American economy. The day after the worst stock market plunge of 2019, the President tweeted, “The United States is now, by far, the Biggest, Strongest and Most Powerful Economy in the World, it is not even close! As other falter, we will only get stronger. Consumers are in the best shape ever, plenty of cash. Business Optimism is at an All Time High!”

Now at least some of this is likely true. Objectively speaking, America has the world’s largest economy as measured by Gross Domestic Product (GDP). But there are reasons to doubt some of the President’s other claims.

For example, while the President says that consumers are in the best shape ever, the very next day CNBC ran a story announcing that Americans are more indebted than ever before. This hardly supports the President’s claim that consumers are in the best shape ever.

And if the economy is doing so well, why, according to the Bureau of Labor Statistics, has the labor force participation rate never recovered to the pre-crisis level?

If everything is so great, why has President Trump publicly called for more Quantitative Easing (QE) and interest rate cuts? QE is a radical money printing scheme which was used by the Federal Reserve as an emergency measure to save the financial system in the 2008 crisis. Since QE is an emergency measure that was used to stave off financial collapse, why is it that, on the one hand, President Trump is telling us that the economy is doing great under his leadership, but, on the other hand, is calling for emergency QE as if the financial system were collapsing again?

Another item contradicting the official narrative that everything is awesome with the economy is the calls for interest rate cuts. In the link above, Trump was calling for the Fed to lower interest rates. In a strong economy, demand for money is reflected in rising, not falling, interest rates. If the President is calling for the Fed to lower interest rates, by implication, he is saying the economy is stalling out, not charging ahead.

In the opinion of this writer, the struggles of ordinary Americans to find work and to make ends meet are reflective of a financial system in disarray, not one experiencing rapid growth.

Further, it is my view that the economic problems roiling America stem from the fact the American government and financial elite have refused for more than a decade now to deal honestly with the serious financial crisis facing the United States. At the root of the problem is the Fed, America’s central bank. Central banking is inherently immoral, unchristian, and destructive of the legitimate interests of the great bulk of the American people.

One of the great evils that flows from central banking is another great plague of modern society: Big Government.

In the quote at the top of this page, John Robbins noted that Gordon Clark thought that the growth of government in the United States was the greatest tragedy of the twentieth century. Considering all the evils of that century, Clark’s statement is remarkable indeed.

It is the contention of this author that America is going bankrupt as a result of big government, a great evil which itself is the child of the prior great evil of central banking. Yet there is no serious attempt on the part of elected officials of either party to address this situation.

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Yield Curve Inversion

US Treasury yield curve as of close of business on 3/22/19.  Note the highlighted areas on the chart showing the 1-month Treasury yield is higher than the 10-year Treasury yield.  This abnormal situation is widely considered to be the most accurate predictor of a future recession. (Source, CNBC).

You may have heard that the US stock market got smacked around pretty hard today. The Dow was off 460.19 or 1.77%. The S&P and NASDAQ had it even worse, off 1.90% and 2.50% respectively.

But while the stock market plunge took center stage today, a major secondary story was the continuing inversion of the US Treasury yield curve. Typical was the headline on CNBC which read Bonds are flashing a huge recession signal – here’s what happened to stocks last time it happened.

The article goes on to quote equity strategist Jonathan Golub saying that a yield curve inversion has preceded each recession over the last 50 years. Golub is hardly alone in saying this. If you listen to knowledgeable investors, they consistently will tell you that a yield curve inversion is the most accurate predictor of an oncoming recession. But this raises the question, So just what is a yield curve inversion anyway?

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Financial Crisis_2008_2

The New York Times headline from October 20, 1987, proclaiming the disastrous trading on the New York Stock Exchange the preceding day, an event which has come to be known as Black Monday.

I was talking to my stockbroker today and I said, “Waiter!”

– Jay Leno, October 1987

Jay Leno’s opening joke on the Tonight Show got a huge laugh from the audience, and with good reason.

That may sound a bit odd, but you need to consider the context. You see, his wisecrack came within days of the Monday, October 19, 1987 stock market crash, an event that has come be known as Black Monday.

On that fateful day, the Dow had dropped over 22%, a record one day percentage plunge exceeding even the big one-day percentage plunges that marked the 1929 stock market crash, and people were in the mood for some good comic relief.

To give a sense of what people were thinking at the time, TheStreet ran an article last year marking the 30th anniversary of Black Monday. In his piece, author Michael Brown noted, “Many thought the crash was the start of the next Great Depression and the headlines of the day reflect it.”

As it turned out, no Great Depression ensued. In fact, things got back to normal pretty quickly. Today, Black Monday is considered something of a one-off oddity. An interesting piece of investing trivia to be sure, but not something terribly relevant for today.

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“I just lost $30,000,” replied the shaken caller after a long pause.

It was the fall of 2008, and I had just started work for a large financial services firm as a 401(k) telephone representative. Little did I know when I took the job a few months earlier that the US, and much of the Western, world, was on the cusp of what many would come to view as the worst financial crisis since the Great Depression of the 1930’s.

The Dow and S&P both were selling off hard, day after day, week after week. People were scared.

Many of the panicked calls that I took were people who wanted to know what the balance of their 401(k) account. In some ways, this struck me as a bit odd. After all, it was 2008 and the internet had established itself as a staple of American life over a decade earlier. “Why don’t these people just go online?,” I wondered to myself.

In retrospect, perhaps one reason people called was that, rather than just watch as the computer screen displayed years of hard won retirement savings evaporate as the morning dew, they just wanted to talk to someone. That’s certainly understandable.

Ten years on, much of the American public thinks of the 2008 crisis, if they think about it at all, as a ancient history. Just last week, the Dow hit a new record high and seems to be headed higher still.

President Trump tweeted out back in June, “In many ways this is the greatest economy in the HISTORY of America and the best time EVER to look for a job!”

American consumers seem to agree. According to the August results from The Conference Board Consumer Confidence Index, consumer confidence is closing in on a new record high. The record of 144.7 set in May 2000 is just a chip shot away from the August 2018 reading of 133.4. Considering that the Consumer Confidence Index dates back to 1967 and that this is a widely watch data series, a new record high in this index would represent a significant achievement.

If we look at the employment picture, everything appears to be headed in the right direction as well. The Washington Post reported in May, one suspects a bit grudgingly, that The U.S. now has a record 6.6 million job openings.

According to the article by Heather Long, “The United States now has a job opening for every unemployed person in the country, a sign of just how far the nation has turned around from the recession that cost so many Americans their jobs nearly a decade ago.”

Signs of economic success are so abundant that, as CNBC reports, “[Former] President Barak Obama has entered credit-taking mode on the economy.”

Politicians aren’t the only ones talking victory laps either. Former Federal Reserve Chairman Ben Bernanke, Treasury Secretary Hank Paulson and New York Fed President Timothy Geithner – the principal architects of the 2008 bailout of the financial system – gathered earlier this month at a forum in Washington D.C. to justify their actions of ten years ago.

According to CNBC’s report, “We stepped in before the banks had collapsed and we did some things to fix the financial system which are very hard to explain because they are objectionable things,” Paulson said. “In the United States of America there’s a fundamental sense of fairness that the American people have. …You don’t want to reward the arsonist.”

“However,” the article continues, “they [Bernanke, Paulson, and Geithner] said doing nothing would have caused the economy to capsize. They acknowledged that some of the terms were distasteful, but they were necessary given the options at hand.”

In essence, the big three argued that they had to do evil that good might come, a line of thinking condemned in the Scriptures but one that is all too commonly used by vested political and financial interests in midst of financial crises to convince a wary the public to go along with their latest scheme to enrich themselves at the people’s expense.

Indeed the moderator of this forum was Andrew Ross Sorkin, who, as the CNBC article notes, wrote the 2010 book Too Big To Fail, The inside story of how Wall Street and Washington fought to save the financial system – and themselves. described as a chronicle of the 2008 crisis from the inside. I have not read this book, but the subtitle does, I think, let the cat out of the bag on the true motives of the bailout.

Unlike the unctuous self-justifications of JP Morgan’s CEO Jamie Dimon, who recently argued that JP Morgan’s actions during the financial crisis were done “to support our country and the financial system,” Sorkin’s subtitle at least admits the too big to fail meme was all about bankers and politicians saving themselves, not the country.

This is not to fault politicians and bankers for having a sense of self-preservation. The Scriptures tell us that no man ever yet hated his own flesh, and this certainly includes those who run the political and financial systems.

No. The fault of bankers and politicians is not in their having a sense of self-preservation, it’s that they lie and steal to get what they want.

In capitalism, in a free market economy, in a nation governed by the rule of law, there is no such thing as too big to fail. In capitalism, banks have a God given right to make money…and a God given right to lose it.

But in our decadent, late stage of empire society, dominated as it is by crony capitalists and their supporting cast of politicians, the Wall Street masters of the universe believe themselves entitled to never ending profits, while losses, well, those are for the little people to bear.

It is the opinion of this author that the intertwined political and financial systems of this country, rather than reflecting anything remotely like a Christian ethic, have become the embodiment of what Jesus talked about when he took his disciples to school for their arguing about who was the greatest.

According to Jesus, “The kings of the Gentiles exercise lordship [lord it over] them, and those who exercise authority over them are called ‘benefactors. ‘ ”

It would be impossible to find a better description of the words of Bernanke, Paulson, Geithner and Dimon than these. First, they conspired to rip off the American taxpayer by forcing machinations such as the Troubled Asset Relief Program (TARP) through Congress as well as the Federal Reserve’s Quantitative Easing (QE) program, about which the American people had no say at all, since it was decided upon by the Federal Reserve, an unelected body, paid for by private banking interests, that does not answer to the public.

TARP and QE were tools of a corrupt and inept financial and political elite, which they used to keep themselves ensconced in power at the expense of ordinary Americans. To put it another way, they lorded their power over the American people.

And, as if that weren’t bad enough, they then have the gall to turn around and act as if their actions were for the good of the country rather than for themselves. That is to say, they claim that, in the end, they’re really our “benefactors.”

And if you think the QE and TARP from 2008 is the end of the bailout road, think again. Wall Street Insiders reports that during the forum mentioned above, Tim Geithner, “called the effort to combat financial instability a ‘forever war.’ ” So we have more bailouts to look forward to. Strangely, this rhetoric is similar to what the advocates of the Global War on Terror say about their efforts, which today have proven largely ineffective.

Question, if your war on terror, financial instability or whatever has no end in sight, doesn’t that suggest you don’t know what you’re doing? Can anyone imagine George S. Patton saying such a thing? Just asking.

Enough of this nonsense!

It is the contention of this author that, contrary to all the self-congratulatory talk about how well the economy is doing, there are abundant signs that all is not well in the US economy. In fact, one could even argue that we’re in the midst of a slow-motion crash, but one that is concealed from public view by money printing, market manipulation and propaganda, what one market observer has called Management of Perspective Economics (MOPE).

Further, it is this author’s contention that, not only have the machinations of the political and financial elite not helped to bring stability to the financial system, they actually are the cause the current instability and all but guarantee a future crisis far bigger than the one in 2008.

Lord willing, it is my intention over the next few weeks to bring the light of Scripture to the 2008 financial crisis. It is my hope to take a look at what was done then, where we are now, and where we’re headed as a result of the decisions that have been made.


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